Here’s Tyler Cowen:
The Fed thus could make an error on either side of its target, through no procedural fault of its own. As a result, as a simple matter of logic, the rate of price inflation could be too high, or it also could be too low.
if you think you know the direction of the error in advance, you aren’t paying enough attention to the underlying unpredictable uncertainties.
If by “know” Tyler means, “know with certainty” then he is correct. But while we may not know with certainty (or even a high level of confidence) what will happen in the future, it’s possible to know with a high level of confidence what is currently expected to happen. There are many ways to ascertain inflation expectations, and all of the methods that I am aware of point to expectations of unusually low inflation going forward.
TIPS spreads, fed funds futures prices, recent CPI readings, commodity prices, wage cuts, and private sector forecasts all point to lower inflation going forward. None of those are foolproof, but where is the evidence of higher than normal inflation expectations?
If we assume that policy should be set in a position where it is expected to lead to on-target outcomes, then we can be highly confident that the current stance of monetary policy is too tight, probably much too tight.
Let’s say the Fed does the very best job possible with its monetary policy (and in my view the Fed has done a very good job so far). That would mean in terms of the loss function a Fed error in one direction would mean a too low rate of price inflation, and a Fed error in the other direction would mean a too high rate of price inflation.
Now, supply conditions have never been so volatile in my lifetime, and perhaps never in American history. We don’t know how the virus will spread, how reopenings will go, when a vaccine will arrive, how good the vaccine will be, how much a climate of fear will persist, and so on. Demand conditions in turn depend on how these supply conditions will evolve.
I would say that when the Fed is doing a “very good job” then demand conditions do not depend on supply conditions. At least not over the medium term (say in 2021.) If the economy is still in lockdown in 2021 then you can argue that it’s appropriate to let demand conditions be partly determined by supply conditions. I don’t expect the economy to be in lockdown in 2021. And “moderate social distancing” is not a sufficient excuse.
One final point. Don’t confuse “doing better than the ECB and BOJ” with doing a good job. Don’t confuse “doing better than the Fed would have done in earlier decades” with doing a good job. Don’t confuse taking unprecedented steps with doing a good job. Don’t confuse being the best Fed chair in Fed history with doing a good job. Doing a good job means setting policy at a level expected to lead to on-target outcomes for the nominal aggregates that you are targeting. Lars Svensson’s “targeting the forecast” is the only valid criterion for evaluating Fed policy.
If the Fed can’t do a good job for political reasons, then say so. Say the Fed can’t do a good job for political reasons, and point fingers at who is stopping the Fed. But we shouldn’t call it a good job if political constraints are forcing a sub-optimal policy.
The Fed is not to blame for the current elevated rate of unemployment. But the Fed likely will be partly to blame for high unemployment much sooner than most economists recognize. Perhaps even by later in the year.
PS. When I say that inflation is likely to run below 2%, I mean in terms of a price level trend line from the end of 2019. In other words, the average inflation rate. I certainly recognize that there will be a few months of above 2% inflation when oil prices bounce back up.
The Media Has Conveniently Forgotten George W. Bush's Many Atrocities
Former president George W. Bush has returned to the spotlight to give moral guidance to America in these troubled times. In a statement released on Tuesday, Bush announced that he was “anguished” by the “brutal suffocation” of George Floyd and declared that “lasting peace in our communities requires truly equal justice. The rule of law ultimately depends on the fairness and legitimacy of the legal system. And achieving justice for all is the duty of all.”
Bush’s declaration was greeted with thunderous applause by the usual suspects who portray him as the virtuous Republican in contrast to Trump. While the media portrays Bush’s pious piffle as a visionary triumph of principle, Americans need to vividly recall the lies and atrocities that permeated his eight years as president.
In an October 2017 speech in a “national forum on liberty” at the George W. Bush Institute in New York City, Bush bemoaned that “Our politics seems more vulnerable to conspiracy theories and outright fabrication.” Coming from Bush, this had as much credibility as former president Bill Clinton bewailing the decline of chastity.
Most media coverage of Bush nowadays either ignores the falsehoods he used to take America to war in Iraq or portrays him as a good man who received incorrect information. But Bush was lying from the get-go on Iraq and was determined to drag the nation into another Middle East war. From January 2003 onwards, Bush constantly portrayed the US as an innocent victim of Saddam Hussein’s imminent aggression and repeatedly claimed that war was being “forced upon us.” That was never the case. As the Center for Public Integrity reported, Bush made “232 false statements about weapons of mass destruction in Iraq and another 28 false statements about Iraq’s links to Al Qaeda.” As the lies by which he sold the Iraq War unraveled, Bush resorted to vilifying critics as traitors in a 2006 speech to the Veterans of Foreign Wars.
Bush’s lies led to the killing of more than four thousand American troops and hundreds of thousands of Iraqi civilians. But since those folks are dead and gone anyhow, the media instead lauds Bush’s selection to be in a Kennedy Center art show displaying his borderline primitive oil paintings.
In February 2018, Bush was paid lavishly to give a prodemocracy speech in the United Arab Emirates, ruled by a notorious Arab dictatorship. He proclaimed: “Our democracy is only as good as people trust the results.” He openly fretted about Russian “meddling” in the 2016 US election.
But when he was president, Bush acted as if the United States were entitled to intervene in any foreign election he pleased. He boasted in 2005 that his administration had budgeted almost $5 billion “for programs to support democratic change around the world,” much of which was spent on tampering with foreign vote totals. When Iraq held elections in 2005, Bush approved a massive covert aid program for pro-American Iraqi parties. The Bush administration spent over $65 million to boost their favored candidate in the 2004 Ukraine election. Yet, with boundless hypocrisy, Bush proclaimed that “any (Ukrainian) election…ought to be free from any foreign influence.” US government-financed organizations helped spur coups in Venezuela in 2002 and Haiti in 2004. Both of those nations, along with Ukraine, remain political train wrecks.
In that October 2017 New York speech, Bush proclaimed: “No democracy pretends to be a tyranny.” But ravaging the Constitution was apparently part of his job description when he was president. Shortly after 9-11, Bush turned back the clock to before 1215 (when the Magna Carta was signed), formally suspending habeas corpus and claiming a prerogative to imprison indefinitely anyone he labeled a terrorist suspect. In 2002, Justice Department lawyers informed Bush that the president was entitled to violate the law during wartime—and the war on terror was expected to continue indefinitely. In 2004, Bush White House counsel Alberto Gonzales formally asserted a “commander-in-chief override power” entitling presidents to ignore the Bill of Rights.
Under Bush, the US government embraced barbaric practices which did more to destroy America’s moral credibility than all of Trump’s tweets combined. Bush’s “enhanced interrogation” regime included endless high-volume repetition of a Meow Mix cat food commercial at Guantanamo, head slapping, waterboarding, exposure to frigid temperatures, and manacling for many hours in stress positions. After the Supreme Court rebuffed some of Bush’s power grabs in 2006, he pushed through Congress a bill that retroactively legalized torture—one of the worst legislative disgraces since the Fugitive Slave Act of 1850. During his years in the White House, Bush perennially denied that he had approved torture. But in 2010, during an author tour to promote his new memoir, he bragged about approving waterboarding for terrorist suspects.
Is Bush nominating himself to be the nation’s racial healer? When he was president, Bush inflicted more financial ruin on blacks than any president since Woodrow Wilson (who brought Jim Crow barbarities to the federal government). Bush trumpeted his plans to close the gap between black and white homeownership rates and promised in 2002 to “use the mighty muscle of the federal government” to solve the problem. Bush was determined to end the bias against people who wanted to buy a home but had no money. Congress passed Bush’s American Dream Downpayment Act in 2003, authorizing federal handouts to first-time homebuyers of up to $10,000 or 6 percent of the home’s purchase price. Bush also swayed Congress to permit the Federal Housing Administration to make no–down payment loans to low-income Americans. Bush proclaimed: “Core American values of individuality, thrift, responsibility, and self-reliance are embodied in homeownership.” In Bush’s eyes, self-reliance was so wonderful that the government should subsidize it. And it didn’t matter whether recipients were creditworthy, because politicians meant well. Bush’s 2004 reelection campaign trumpeted his down payment giveaways, a shining example of “compassionate conservatism.”
Thanks in large part to his policies, minority households saw the fastest growth in homeownership leading up to the 2007 recession. The housing collapse ravaged the net worth of black and Hispanic households. “The implosion of the subprime lending market has left a scar on the finances of black Americans—one that not only has wiped out a generation of economic progress but could leave them at a financial disadvantage for decades,” the Washington Post reported in 2012. The median net worth for Hispanic households declined by 66 percent between 2005 and 2009. That devastation was aptly described in a 2017 federal appeals court dissenting opinion as “wrecking ball benevolence” (quoting a 2004 Barron’s op-ed I wrote). But almost none of the media coverage of the ex-president reminds people of the economic carnage of this Bush vote-buying binge.
It is possible to condemn police brutality and, even more importantly, the evil laws and judicial doctrines that enable police to tyrannize other Americans without any help from a demagogic ex-president who ravaged our rights, liberties, and peace. As I commented in an August 2003 USA Today op-ed, “Whether Bush and his appointees will be held personally liable for their [Iraq War] falsehoods is a grave test for American democracy.” The revival of Bush’s reputation vivifies how our political media system failed that test. As long as George Bush doesn’t turn himself in for committing war crimes, all of his talk about “achieving justice for all” is rubbish.
Police Are Killing Fewer People In Big Cities, But More In Suburban And Rural America
Six years after nationwide protests against police violence captured the country’s attention, the recent killings of Breonna Taylor and George Floyd have put the issue of police violence back into national focus. Many are left asking what, if anything, has really changed?
In the absence of comprehensive federal data, databases such as Fatal Encounters, Mapping Police Violence and The Washington Post’s Fatal Force project have tracked these killings year after year. And the data produced by these projects suggests that police, at least on a national level, are killing people as often now as they were before Michael Brown’s death in Ferguson, Missouri, sparked widespread protests in 2014.
But these numbers don’t tell the whole story. While the nationwide total of people killed by police nationwide has remained steady, the numbers have dropped significantly in America’s largest cities, likely due to reforms to use-of-force policies implemented in the wake of high-profile deaths. Those decreases, however, have been offset by increases in police killings in more suburban and rural areas. It seems that solutions that can reduce police killings exist, in other words — the issue may be whether an area has the political will to enact them.
Indeed, looking only at the 30 most populous cities in the country,1 you see a substantial decrease in the number of people killed by police in recent years.
Police departments in America’s 30 largest cities killed 30 percent fewer people in 2019 than in 2013, the year before the Ferguson protests began, according to the Mapping Police Violence database. Similarly, The Washington Post’s database shows 17 percent fewer killings by these agencies in 2019 compared to 2015, the earliest year it tracks.
This data isn’t perfect. The databases have slightly different methodologies for collecting and including police killings. And not everyone who’s shot winds up dying, which means some people who are shot by police don’t end up in one of these tracking projects. So to better test and understand the progress made in these big cities, I compiled an expanded database of all fatal and nonfatal police shootings by these departments, which expands our view of any changes in police behavior. Based on data published on police departments’ websites and reported in local media databases, I found data covering police shootings in 2013-2019 for 23 of the 30 departments.2 An analysis of this data shows that police shootings in these departments dropped 37 percent from 2013 to 2019.
So why haven’t these trends resulted in fewer people killed by police nationwide?
Examining the geography of police killings based on population density (a methodology developed by the real estate site Trulia, which was featured in a previous FiveThirtyEight article), police killings in suburban and rural areas appear to have increased during this time period — offsetting reductions in big cities.
This shift mirrors other trends within the criminal justice system. For example, since 2013, the number of people in jail per capita in urban areas has fallen by 22 percent, while rates have increased by 26 percent in rural areas, according to a study by the Vera Institute of Justice.
Similarly, arrest rates have declined in major cities at a faster pace than arrest rates in suburban and rural areas. Fewer arrests means fewer police encounters that could escalate to deadly force — police are substantially more likely to use force when making an arrest than in other interactions with the public — so falling arrest numbers could have a marked effect on police killings. Comparing police shootings data to the arrests data each department reported in the FBI Uniform Crime Report shows that departments that reported larger reductions in arrests from 2013-20183 also reported larger reductions in police shootings. Specifically, cities that reduced police shootings also made 35 percent fewer arrests in 2018 than 2013, compared to only a 4 percent drop in arrests in cities where police shootings increased or remained constant. These declining arrest rates have been attributed, in part, to reforms reducing enforcement of low-level offenses such as marijuana possession, disorderly conduct, loitering and prostitution.
Other reforms may be making a difference as well. Police shootings dropped in Philadelphia, San Francisco and Baltimore after the cities began reforming their use-of-force policies to match recommendations from the Department of Justice. In Chicago, police shootings dropped following protests over the shooting of Laquan McDonald and fell further after the city adopted more restrictive use-of-force policies and a new police accountability system. Denver also adopted more restrictive use-of-force policies in 2017, requiring de-escalation as an alternative to force. Los Angeles police shootings reportedly declined to the lowest number in 30 years in 2019, which officials attribute to new policies requiring officers to use de-escalation and alternatives to deadly force. Shootings dropped precipitously in Phoenix a year after public scrutiny led the department to evaluate its practices and implement changes to its use-of-force policy. And, in response to local protests over the 2012 killing of James Harper, Dallas implemented a range of policies to emphasize de-escalation, which local authorities credit with producing a sustained decline in police shootings.
This suggests that reforms may be working in the places that have implemented them. Many of these reforms were initiated in response to protests and public outcry over high-profile deaths at the hands of police — most notably in Baltimore following the police killing of Freddie Gray, in San Francisco following the killing of Mario Woods, and in Chicago and Dallas following the deaths of Laquan McDonald and James Harper. This suggests that protests and public pressure may have played an important role in producing policy changes that reduced police shootings, at least in some cities.
Of course, that’s a double-edged finding. The absence of reforms in more suburban and rural cities and towns could explain why police killings haven’t decreased in those areas — though it may not explain why they increased. There’s still a lot we need to investigate about how policing is changing in rural and suburban areas. More Latinos are being killed by police in suburban areas than before, according to Mapping Police Violence data, while more white people are being killed in rural areas than before. Some of this might reflect demographic shifts (though killings have dropped in urban areas across all races) or other changes in the criminal justice system — for example, the share of the population that’s in jail awaiting trial has been increasing in rural areas. Gun-related suicides and gun deaths in general appear to be increasing in rural areas, which might also be spilling over into policing practices and responses.
Still, if we know that certain policies reduce police violence, adapting those reforms to smaller cities, suburban and rural communities could be a pathway to reducing police violence in the U.S. overall. But that would take political willpower at the local level, and the country’s growing urban-rural political divide might make that difficult.
Newsletter: The Slow Process of Healing the Economy
This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.
The American Economy is Healing—Slowly
The U.S. economy didn’t deteriorate as badly in May as it did in April. That is a far cry from saying that it is getting better. The Institute for Supply Management said its index for nonmanufacturing activity climbed to 45.4 last month from 41.8 in April. That came on top of its report Monday that its manufacturing index had climbed to 43.1 from 41.5. But anything under 50 indicates worsening activity. The underlying message: Even though restrictions to stem the spread of the novel coronavirus eased last month and more Main Street businesses were able to at least partially resume operations, the crisis is far from over, Justin Lahart writes.
WHAT TO WATCH TODAY
The European Central Bank releases a policy statement at 7:45 a.m. ET.
U.S. jobless claims for the week ending May 30 are expected to fall to 1.8 million from 2.123 million a week earlier. (8:30 a.m. ET)
The U.S. trade deficit for April is expected to widen to $50 billion from $44.4 billion the prior month. (8:30 a.m. ET)
U.S. productivity is expected to fall 2.7% in the first quarter, unrevised from a previous estimate. (8:30 a.m. ET)
Japan household spending for April is out at 7:30 p.m. ET.
Back to Work
Last week’s jobless claims report showed the number of people receiving unemployment benefits fell for the first time since February. Another drop would suggest people are being rehired. Even so, it could take years for the economy to regain the millions of jobs lost during the coronavirus pandemic, Sarah Chaney reports.
The latest report is out today at 8:30 a.m. ET.
States across the country are being hit by unemployment-benefit fraud, reflecting the vulnerabilities that workers and governments face in the midst of historically high levels of jobless claims. Scott Dahl, the inspector general for the U.S. Labor Department, said at least $26 billion in unemployment insurance payments could be wasted during the pandemic, Sarah Chaney reports.
The coronavirus pandemic caused unemployment to rise in every metropolitan area in the U.S. in April. Tourist destinations and factory towns were hardest hit, Eric Morath reports.
Looting strikes a second blow to businesses in minority neighborhoods. Vandalism and theft at many large retailers are delaying efforts to restart an economy that lost millions of jobs to the Covid-19 pandemic. The damage to small businesses could be more devastating, potentially permanently closing doors. Small businesses, especially minority-owned ones, typically have little savings and very often don’t have multiple locations to help blunt the ravages of the pandemic and the looting, Scott Calvert and Ruth Simon report.
Jumbled supply chains and new safety protocols are hobbling U.S. manufacturers as they look to emerge from coronavirus shutdowns. Some factories are looking for alternative suppliers to compensate for plants that remain closed or are overwhelmed by orders for items in high demand. Other companies say new protective equipment and procedures to add space between workers will weigh on their profits and productivity, Austen Hufford and Bob Tita report.
After the Money’s Gone
Nine weeks after Congress approved its largest-ever economic relief measure to counter the coronavirus pandemic, most of the direct cash assistance aimed at keeping the economy afloat has been spent or committed. The so-called Cares Act included a projected $1.2 trillion in direct aid; Congress topped up that sum in April with an additional $400 billion. Of the total, roughly $1.12 trillion, or about 70%, has been distributed, Kate Davidson and Paul Kiernan report.
Germany adopted its second economic-stimulus package since the start of the coronavirus pandemic, bringing their total cost to €1.3 trillion ($1.5 trillion), by far the largest in Europe as a share of gross domestic product. Years of budget surpluses and negative borrowing costs have allowed Germany to rapidly deploy a vast protective shield to cushion the impact of the pandemic, Bojan Pancevski and William Boston report.
The Trump administration threatened Wednesday to bar mainland Chinese airlines from flying to and from the U.S. starting later this month, saying Beijing has failed to approve resumption of these routes by U.S. carriers. The threat of a ban was the latest sign of souring U.S.-China relations that are at their worst in more than three decades, Alison Sider and Ted Mann report.
Chinese state-controlled companies have canceled some shipments from U.S. farm exporters, according to maritime officials. The cancellations involve orders made following the phase one trade pact between the two countries signed in January. China committed in the agreement to increasing purchases of U.S. goods and services by $200 billion over 2017 levels, Costas Paris reports.
Campbell Soup raised earnings expectations for its fiscal year after demand skyrocketed for its soup and snacks during the coronavirus pandemic. Sales in its latest quarter jumped 17% on a comparable basis, including a 35% surge in U.S. soup sales—the strongest performance by that metric in decades. But demand has exceeded Campbell’s manufacturing capacity, causing it to lose market share in heat-and-eat soups, Annie Gasparro reports.
QUOTE OF THE DAY
“This is the biggest recession we’ve experienced in our lifetime. It’s like a car crash, without an airbag.” —Jérôme Haegeli, chief economist at insurance company Swiss Re
WHAT ELSE WE’RE READING
Could anything good come of coronavirus? “If more of us end up working remotely after the pandemic, there is one change that could make work better: ending the misalignment between the school day and the work day. The gap between 3 p.m. and 5 p.m. in many countries is grossly unfair to working parents. Some propose making school days longer, but I advocate shorter work days,” the University of Pennsylvania’s Adam Grant writes in the Economist.
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